Blackstone said to hire CIBC for sale of 29 Canadian buildings

Blackstone Group LP hired CIBC World Markets Inc. to sell 29 office buildings in Canada valued at about $900-million, aiming to capitalize on investor appetite for well-leased properties, according to two people with knowledge of the plan

Blackstone Group LP hired CIBC World Markets Inc. to sell 29 office buildings in Canada valued at about $900-million, aiming to capitalize on investor appetite for well-leased properties, according to two people with knowledge of the plan.

The offices, located in downtown Toronto, Calgary, Edmonton and Ottawa, have 3.2 million square feet (297,000 square meters) of space and are about 96% occupied, said the people, who asked not to be identified because the information is private. Possible buyers include Canadian real estate investment trusts and pension funds, the people said.

Blackstone and partner Slate Properties Inc., a private- equity firm based in Toronto, began acquiring the 29 properties, along with one that’s been sold, in 2005. The buildings were less than 90% occupied when acquired, and the owners refurbished them to attract new tenants, said one of the people familiar with the assets.

“They’re probably selling at a good point in the cycle,” said Ross Moore, director of market and economic research at Seattle-based Colliers International. “Compared to the U.S., the downturn has been exceptionally mild” in Canada, he said.

Canadian property prices are recovering and the country’s economy has been buoyed by high energy prices and low interest rates, said Moore, who is based in Vancouver. The Bloomberg Canadian Real Estate Investment Trust Index has gained 37 percent, including reinvestment of dividends, over the past year, outpacing the 32 percent total return of the Bloomberg U.S. REIT Index.

‘Platform Play’ “This is not just a good asset play, it’s a platform play,” said John O’Bryan, vice chairman of CB Richard Ellis Ltd., a property-services firm in Toronto. “You’ve got enough geographic diversity, and their Canadian partner Slate Properties have done a really good job repositioning the assets.”

Canadian life insurers might be among investors interested in the buildings, he said.

Toronto and Calgary, two markets where new construction has raised concern that supply might outstrip demand, have experienced strong absorption of new space, Moore said.

Vacancies Fall The office vacancy rate in downtown Toronto, home to 16 of the 29 buildings Blackstone plans to sell, dropped to 6.3% in the first quarter from a recession high of 7.3% in 2009’s fourth quarter, according to CB Richard Ellis. In downtown Calgary, vacancies fell to 11.5% in the first quarter from a high of 15.7% in the second quarter of 2010.

Peter Rose, a spokesman for New York-based Blackstone, the world’s largest private equity firm, and Tom Wallis, a spokesman for CIBC, a unit of Canadian Imperial Bank of Commerce, both declined to comment. Blair Welch, a founder and partner of Slate Properties, didn’t return a telephone call seeking comment.

While it plans to sell stabilized office buildings in Canada, Blackstone has been stepping up acquisitions of properties in need of operating improvements or debt relief. The company in April agreed to pay US$160-million for the top 12 floors of the former New York Times Co. headquarters building in midtown Manhattan. In March, Blackstone won the bidding for control of a 22-story office building at 1140 Avenue of the Americas that has been more than 50% vacant.

Blackstone controls the 29 office properties being marketed in Canada. Slate Properties holds a stake and manages them. The buildings constitute all of Blackstone’s office real estate in Canada, according to the people with knowledge of the planned sale.

Earlier this month, a joint venture including Blackstone agreed to sell the 712-room Radisson Lexington Hotel New York for $335 million to DiamondRock Hospitality Co., a Bethesda, Maryland-based REIT that owns hotels operated by Marriott International Inc.

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